Sunday, July 10, 2005

Negative Pricing

One important step in determining a price for your product is to determine how much it's actually worth. But what does that mean?

Your product is worth exactly the same amount as the cost of not using your product. Analyze the way prospective customers currently achieve the goals your product would satisfy and determine the costs they face in achieving these goals.

No, "negative pricing" does not mean paying your customers to use your product. It's the term I use for basing the price of your product on how much it costs for your customers not to use it.

2 comments :

Balu said...

What you said is partly right. But its tricky to price your product if ppl miss-understand the concept. For example an excel-automation might save few millions to a company where it hardly save few Tonne to other. In that case how would you place your product. I would be glad if you can post some best methodologies that can be used/currently being used.

Roger L. Cauvin said...

Thanks for pointing out that the "negative price" of a product (the cost to not use the product) varies by customer.

There are at least two ways of dealing with this challenge:

1. Vary the price of the product based on factors (e.g. number of "seats") that reflect the value to the customer.
2. Identify the largest market segment with the highest "negative price" and price the product to that segment.